August 12, 2010

News Briefs

  1. Pair of Mechanic's Lien Law Changes Leave As Many Questions As Answers
  2. NACM Considers Sen. Whitehouse's Bankruptcy Legislation
  3. The Balanced Scorecard
  4. Cornered Fed Leaves Rates Alone, Admits Slowing Recovery
  5. PCI Standards Changing Frequently
  6. July Consumer Filings Up 9% From Previous Month, Year


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Pair of Mechanic's Lien Law Changes Leave As Many Questions As Answers

Virginia and Missouri both successfully amended their respective mechanic's lien statutes, with the changes largely impacting contractors and subcontractors who perform work on residential structures. However, both may have fallen short in quests to advance lien law clarity.

In Virginia, the commonwealth amended the Mechanic's Lien Agent (MLA) portion of its law to clarify that building permits may be amended to add or change the MLA. While that had been assumed by some, the statute change was designed to remove any doubt. Unfortunately, said Virginia-based attorney James Fullerton, the change doesn't seem to properly address the issue of timing. The Fullerton & Knowles, P.C. attorney raised the following questions which, as yet, appear to have no concrete answers:

  • When does the claimant have the obligation to check if the MLA has changed compared to when the claimant begins work or compared to when a claimant sends an MLA notice?
  • What if there is no MLA on the building permit when the claimant starts shipment, but the permit is amended to add one within 30 days after shipping began?
  • Does notice need to be sent the day shipment begins, 30 days after or at the end of a construction project?
  • Can an owner eliminate any rights to lien for any claimant by amending the building permit at the end of a construction project by adding an MLA?

"Hopefully, the courts will give us some clarification and prevent abuses of this statute," said Fullerton. Still, he admitted that it will be "very unusual" for a property owner to amend permits specifically to thwart mechanic's liens and the changes should not cause a significant change for most labor and materials suppliers.

"With these amendments, however, it may be better to check the current building permit and send MLS notices closer to the deadline of 30 days after you start shipments," said Fullerton. "If you send a proper notice to the MLA agent on the building permit at your deadline to preserve your rights, it would be hard to believe that a court would rule that an owner could eliminate your rights retroactively after that by amending the permit."

Gregory Powelson, director of NACM's Mechanic's Lien & Bond Services, said he believes the Virginia change is more cosmetic than significant and will affect attorneys more than anyone else. "This seems to be designed to protect novice residential owners who are deemed almost by statute to not be as 'in the know' as commercial owners," he said.

Powelson is, however, concerned with changes to Missouri's mechanic's lien statutes, set to go into effect in November. He characterizes them as convoluted and poorly written. Key to the changes, which apply to residential property, is the very definition of residential property. Powelson believes the law allows for a property to be considered residential if that is its ultimate intent, even if it's still owned by the developer and not occupied. Additionally, the statute caps residential properties at "four units or less," but leaves an exception for condominiums. In essence, this allows unlimited development under the statute as long as they're building structures that could be considered condos, said Powelson.

The change requires owners or an owner's agent to record a notice of intent to sale within 45 days from the earliest the property can be conveyed. Additional requirements are tacked on if said filing does not occur.

"If the owner doesn't do something proactive for the provisions to kick in, it's going to put some really whacky conditions on downstream suppliers," said Powelson. "This statute requires the notice be posted on the job site. The problem is, if you're a supplier, you're never going to go to the job site. The good news is, and this is going to be an important trick for the downstream supplier, if the claimant requests a copy of notice of intent to sell, the owner or owner's agent must supply the copy within five days of request. Thankfully, that's in there. From our client's perspective, we're going to have to make sure that before they're completed the job, they fill this out."

The point of the statute appears to be protecting homeowners from getting caught up in a lien filing, but it may have just created a lot of unnecessary red tape to do so.

"Nobody wants to get involved with filing stuff with the county office," said Powelson of a new requirement. "As soon as you start adding a registered element to this, complications exist...And, if you get a copy of this notice of intent, you're required to send that to your customer. You have to do all of this to remain eligible to file a lien. This is not helping anything. There are going to be people who totally screw up their lien rights because of this. All of the sudden you have to prove you sent a copy of this notice of intent to customers, and that's how you potentially lose a lien right."

Powelson added that the statute is not vague, as are so many, but simply disjointed and has too many conditional steps involved. Still, it's what contractors and subs working on such projects in Missouri are going to have to get used to unless some type of rewrite is completed quickly.

For information or to register for MLBS's Half-day Workshop in St. Louis, which will focus on the aforementioned changes and much more, click here.

Brian Shappell, NACM staff writer

MLBS Offers Complete Lien and Bond Services and More

NACM's Mechanic's Lien and Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.

MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.

MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program, and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.

For more information on NACM's MLBS, click here.

NACM Considers Sen. Whitehouse's Bankruptcy Legislation

NACM's Government Affairs Committee is currently considering the finer details of Sen. Sheldon Whitehouse's (D-RI) new bankruptcy bill, which was previously mentioned in last week's edition of eNews.

Introduced as the Small Business Jobs Preservation Act of 2010, the bill would create a new procedure by which smaller firms could reorganize their business in such a way that allows them to continue operating long after bankruptcy. It changes the definition of a "small business enterprise debtor" to include businesses with no more than $7.5 million in debt, excluding debts owed to affiliates and insiders, half of which must have arisen from the debtor's business activities.

The bill would also require the U.S. Trustee's office to appoint a disinterested standing trustee in each case, but would essentially allow only the small business debtor the right to file a plan. The trustee can facilitate the plan and see that the debtor is making timely payments under the plan, but in the bill's current form, the trustee does not have the right to file its own plan. Additionally, the debtor has a 90-day deadline to file this plan, but extensions can be granted by the court.

Confirmation requirements for a plan are the same in the bill as they are under a normal Chapter 11, except the amount to be paid for an allowed unsecured claim may be less than the actual amount of the claim. Also, the value of property to be distributed may be less than the projected amount of disposable income over the next five years. The term "disposable income" in this instance means income unnecessary for maintenance or support of the debtor, a dependent of the debtor or a domestic support obligation, as well as the debtor's business. Such a definition is rather broad and could possibly have arisen from concerns surrounding family-owned businesses and sole proprietorships.

In addition to this, the court, according to the statute, must confirm the plan, even if no creditor has accepted it, as long as it does not discriminate unfairly and is fair and equitable for each creditor. A "fair and equitable" plan is one that provides that all of the debtor's disposable income over a three-to-five year period goes to repayment, leaves a reasonable likelihood that the debtor will be able to make payments under the plan and satisfies normal Chapter 11 "fair and equitable" requirements.

Absent from the bill is any provision addressing NACM's top legislative priority, which is the abuse of bankruptcy preference statutes. Negotiations will continue.

If you have any opinions or questions about the bill, please contact NACM by emailing Jacob Barron at

Jacob Barron, NACM staff writer

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The Balanced Scorecard

Financial measures only tell part of the story. In fact, Professor R.S. Kaplan of Harvard Business School in The Evolution of Management Accounting stated that "to provide corporate decision makers with solely financial indicators is to give them an incomplete set of management tools."

Other indicators are necessary to show exactly how a department is humming along and where it could stand to improve, one employee at a time. But knowing where your company is, and where it's headed, requires communication across departmental lines, and sometimes even just between coworkers. "A goal I have is that my company's managers must meet with their employees for one hour every month to talk to them about them," said Susan Delloiacono, CCE, a director of credit at CertainTeed Corporation with more than 25 years' experience in credit. By making this a requirement, Delloiacono noted that she not only gets the story on what's happening with rank and file employees, but also with her department managers. "To know that your employees are being listened to and that your managers are guiding your employees—that's so critical," she added.

This is what's known as an internal metric. It's very valuable, but is still only one part of the complete, thorough information on your department that your company's top brass will need to make their decisions. To really paint a clear picture, a credit professional must give them data on all parts of day-to-day operations, internal and otherwise, in order to give upper management what's commonly called the balanced scorecard.

To learn more about metrics and how to use a balanced scorecard to present your department's performance to your company's management, join Delloiacono on August 16 at 3:00pm EST for her NACM teleconference, "Balanced Scorecard." Delloiacono will illustrate how to create the right "balance" by examining the four parts of the scorecard strategies and measures that drive common goals and performance metrics: financial, innovation, customer and internal. Attendees will learn how to increase their ability to strategically plan and measure their department's impact on their company's bottom line.

For more information, or to register, click here. To learn more about NACM's teleconference series, click here.

Jacob Barron, NACM staff writer

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Cornered Fed Leaves Rates Alone, Admits Slowing Recovery

The Federal Reserve admitted the recovery is stalling somewhat but, with little room to maneuver on rates, left the target range for the federal funds rate unchanged yet again following an economic policy meeting Tuesday. Meanwhile, the Fed's inability to help drive efforts to aid the pace of the economic recovery and the growing perception that it has little wiggle room because of the historical low funds rate, appears to be fueling some dissention in the ranks.

Following a meeting of the Federal Open Market Committee (FOMC), the Fed noted the pace of the recovery, both in output and employment, "has slowed in recent months." Among the areas continuing to struggle most are commercial construction/real estate and bank lending. For the first time since the recession, the FOMC made the pessimistic prediction, "The pace of the economic recovery is likely to be more modest in the near-term than had been anticipated."

However, because the target for the federal fund rate is virtually as low as it can go, at a range between 0% and .25%, Chairman Ben Bernanke and company had to sit on their hands and take no action yet again. The lack of sustained inflationary pressure helped to rationalize the decision for the most part, though committee member Thomas Hoenig fretted that inflation indeed should be considered as a looming threat sooner than his colleagues believe. Hoenig voted against leaving the rate unchanged, preferring an increase to enable the Fed to make a downward adjustment when its impact is badly needed.

The Fed did note that it plans to try to help stave off more slowing on the part of the recovery by reinvesting expiring federal holdings from previous purchases of mortgage-backed securities into longer-term Treasury securities.

NACM Economic Advisor Chris Kuehl, Ph.D.of Armada Corporate Intelligence, intimated the Fed is between a rock and a hard place, so to speak, and will have a difficult time deciding whether to be patient by waiting for the impact of its previous moves or "engage in something more radical." The solution remains far from simple.

"The options that exist for the Fed are limited," said Kuehl in his daily Business Intelligence Brief. "The interest rates are as low as they can go, and there has already been considerable intervention through the acquisition of over $1.25 trillion in mortgage-backed securities. The Fed could still buy more of these, but mortgage rates are already low. There is the option of reducing the interest rate that banks are paid for the money they keep in reserve, but there is no guarantee that the banks would loan much more than they are now. The Fed can directly buy U.S. debt, but that would expose them to criticism for monetizing the national debt, and that is an inflationary move."

NACM's Credit Managers' Index (CMI) survey for August opens next week. Look for the announcement in your next Credit Essentials. View July's report here.

Brian Shappell, NACM staff writer

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PCI Standards Changing Frequently

In a technological age, and one fraught with fears regarding fraud, credit card payment security continues to be an important and constantly evolving topic. To take one's eye off the ball for just a few months means some important change to security standards has likely been missed.

PCI-DSS (Payment Card Industry-Data Security Standard) was designed by credit card companies to help companies processing such payments avoid various security breaches and attempts at fraud. As such, those companies accepting payments from major credit cards must remain compliant or face fines or loss of privileges. Don Roeber, manager of merchant PCI compliance with Fifth Third Processing Solutions, will present an August 18 NACM teleconference on PCI Compliance at 3:00pm, and will take callers through the ins-and-outs of avoiding such problems.

An important part of the teleconference will be outlining recent clarifications as well as potential changes "coming down the pike" for PCI-DSS, said Roeber. With a new version of the PCI Security Council's standard due out this fall, the changes likely will include some important clarifications on issues such as existing data encryption. Changes that reflect technological advancements and clarify vague parts of the standard are pretty much par for the course with PCI-DSS—and the coming year appears to be no exception.

"There are a number of new clarifications that have been published just over the last year," said Roeber. "These programs' security [measures] are constantly evolving. So if you don't stay plugged in, you are going to miss something."

Also on Roeber's radar for the teleconference is the Visa announcement that it will phase out all pre-PCI PIN entry devices. This could mean the need for a pretty significant investment from merchants as a whole.

"There are thousands and thousands of these devises currently deployed in production right now—They're going to have to be out of production, and merchants are going to have to spend money for the new devices," said Roeber. "It affects anyone using those devices."

Brian Shappell, NACM staff writer

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July Consumer Filings Up 9% From Previous Month, Year

Nine was the not-so magic number in July's consumer bankruptcy filings, as the figures showed both a 9% increase from June's filing numbers, as well as a 9% increase from the filings in July 2009.

According to the American Bankruptcy Institute (ABI), 137,698 consumer bankruptcies were filed last month, in comparison to the 126,434 filings recorded in July 2009 and the 126,270 filings in June 2010. Chapter 13 filings comprised 28% of all the consumer cases in July, which marked a slight increase from June. "Debt burdens, unemployment and an uncertain economic climate continue to weigh on consumers," said ABI Executive Director Samuel J. Gerdano. "The pace of consumer filings this year remains on track to top 1.6 million filings."

Consumer filings had declined for three months prior to the spike in July, the first increase since March. However, July has historically been a big month for bankruptcies and, according to the National Bankruptcy Research Center (NBRC),  July filings on a seasonally adjusted basis were only 1% higher than filings in May or June.

Nonetheless, filings for 2010 to date are still about 13% in excess of statistics from the first seven months of 2009. Regionally, filing rates are highest in the South, both the Southwest and the Southeast. Nationwide, filings this year amount to about 8,000 filings per million households, but in Nevada, on a household-adjusted basis, the rate exceeds twice that at about 18,000 filings per million households. On a county basis, however, the worst rates are concentrated in Georgia, primarily near Atlanta. Six of the 10 counties with the highest filing rates were in the Georgia.

Jacob Barron, NACM staff writer

To view past eNews issues or to visit the NACM Archives, click here.



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